Sawtooth Industries
Sawtooth Industries uses an economic order quantity (EOQ) model to manage its inventory investment. The company uses about 25,000 molded plastic assemblies each year. Order costs for these are $150 per order, while carrying costs are about $250 per unit per year. Assume a 365 day year.
-What is Sawtooth's total cost at the EOQ?

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand rate, $S$ is the order cost, and $H$ is the holding or carrying cost per unit per year. Plugging in the given values: $D = 25,000$, $S = 150$, and $H = 250$, we get EOQ = $\sqrt{\frac{2*25,000*150}{250}} = 500$. The total cost at the EOQ includes the order cost, carrying cost, and purchase cost. However, the purchase cost is not relevant to the EOQ calculation and is the same regardless of the order quantity. The total cost (TC) at EOQ can be calculated using the formula $TC = \sqrt{2DSH}$ + (D*P) where $P$ is the purchase cost per unit, which is not given or needed here. Thus, $TC = \sqrt{2*25,000*150*250}$ = $43,375.

Sawtooth Industries Sawtooth Industries Uses an Economic Order Quantity (EOQ) Model to Model